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Tuesday, 7 June 2011

Huge price rises for QPR's fans are small potatoes for the club and its owners

Despite the "boom" in football driven by ever higher TV income, fans across the country have faced years of inflation in the cost of following their team. Yet from the Taylor Report of 1990, through various government task forces, to the current DCMS Select Committee enquiry, the need to keep football affordable has been widely recognised. The incredible loyalty engendered by the sport means it is not a normal "substitutable" good, football fans are highly price inelastic and vulnerable to being exploited. The lack of supporter ownership means fans rarely have a say in the business models of what are really "their" clubs, whoever the short-term legal owners may be.

The last few months have seen some truly shocking examples of aggressive price increases, including the Champions League Final, the Conference Play-off Final and of course the price rises at Queens Park Rangers where, for example, a “Gold” season ticket will go up from £599 last season (£26 per game) to £759 next season (£40 per game). That’s a rise of 54% per match.

Of course, most promoted clubs raise ticket prices. Last season, Newcastle increased prices by 10% and West Brom by 13% (Blackpool held them flat). The other automatically promoted club this year, Norwich City, have announced rises of 8-15% for 2011/12.

What is puzzling is the scale of the QPR price rises which hit the club's core support so hard when a) they only bring in a tiny amount of extra money and b) the club and its owners really don’t need the extra cash.

Modelling ticket income

Looking at QPR’s most recent report and accounts (for the 2009/10 season), the commentary states that 34% of revenue comes from ticket sales, so we know that in that year ticket sales totalled c. £4.9m. The club played 25 home matches in 2009/10 with average attendances of 12,720 (around 69% of capacity at Loftus Road). That's c. £196,000 per match. With no price increase in 2010/11, we can use this as a base for forecasting figures for 2011/12.

Next season, back in the top flight the club, no doubt expects very high attendances. Assuming average gates run at 95% of capacity, that would take ticket income to around £268,000 per game (at constant ticket prices).

Ticket prices per match are going up by between 48% (Bronze season tickets) and 73% (Platinum season tickets). Taking a weighted average of 55%, that will boost the projected revenue per home game (at 95% of capacity) of £268,000 by an additional £147,000 to a total of c. £416,000 per match.

Spread over a 19 home game Premier League season, that's 19 x £147,000 = £2.8m extra revenue for the club next season from the ticket price increases.

A price hike in-line with the norm for promoted clubs of (say) 10% would add £509,000 to QPR’s revenue in 2011/12. The question is, why do QPR feel the need to be so aggressive on pricing at a time when most supporters are seeing falling real incomes? Is the extra c. £2.3m in 2011/12 compared to a “normal” promotion price increase worth the pain it inflicts on fans?

Putting the £2.8m extra in context

The extra revenue from the 55% price increase is insignificant in comparison with the Premier League TV income the club will earn next season which will range from c. £39m (the amount Blackpool received in 2010/11) to £45m or more (Fulham received £47.4m in 2010/11 for example). Each Championship club (not in receipt of parachute payments) receives £4.6m per annum.

On top of the extra TV money, promotion should improve QPR's ability to earn income from corporate relationships. Given the club's long exile from the top division, QPR's commercial performance is actually pretty good already, perhaps reflecting the three co-owners' ability to attract big brands. In March 2008, QPR signed a 5 year kit deal with Lotto Sport Italia reported to be worth £20m, a record for a Championship club. In the same year a three year £7m shirt deal was signed with Gulf Air.

The club do not split out corporate income in the accounts, but we can derive a number for 2009/10 by estimating media income (around £4.6m).

This £4.9m compares very favourably with many Premier League clubs' commercial operations (Bolton earned £4.8m and Everton £8.8m in 2009/10 for example). There may be some definitional variations (the QPR estimate includes corporate hospitality not covered by tickets for example), but QPR has a strong commercial base that can only improve following promotion.

Before any ticket price increases, QPR should see its income in 2011/12 rise from around £14m to c. £54m. Non-staff operating costs will be around £10m, leaving significant room to improve the squad and pay Premier League wages (the wage bill could rise 2.5x and the club would not make an EBITDA loss).

The rationale for the huge price rises (other than greed of course) is very hard to identify. Which brings us to the owners.

Unlike most clubs, QPR has owners with very deep pockets. Shareholders Bernie Ecclestone, Flavio Briatore and Lakshmi Mittal rival Roman Abramovich or Sheikh Mansour as the richest owners of a Premier League club.

Although QPR fans are no doubt grateful to their club's famous owners for saving them from financial oblivion in 2007, the motivation of the trio in owning QPR remains unclear. None are natural fans of the club, and whilst they have bankrolled losses (injecting £41m up to 31st May 2010 on top of the £14m paid originally), there has been no substantial investment in the playing squad or ground. Briatore has famously spoken of turning the club into a "global brand", but no mechanism to achieve this has been suggested.

In the three seasons up to 2009/10, the club spent a net £4.8m in cash on players and a net £5.3m on the ground. Net transfer spending in 2010/11 was close to zero. Success has come from finally finding a manager who is a proven promotion specialist, not from spending.

Meanwhile Ecclestone placed a £100m price tag on the club in April and there were abortive talks about he and Briatore selling out to Mittal in May this year (ending with the Mittal offer being dismissed as "insultingly low").

So QPR and its owners remain one of football's mysteries. These are the mega-rich owners who haven't bought any players and who, despite the £40m windfall coming the club's way, feel that what QPR really need to do is screw another £2m out of their fans....

Edit at 2.30pm 7th June 2011:

In the comment section, "this is my England" points out that the ticket price increases are even higher than the 55% I quote above. By restricting the number of season tickets to around 9,000, QPR is ensuring more fans pay the new “match day” prices. These haven't been published yet, but judging from the "savings" mentioned in the season ticket brochure, "Gold" “match day” tickets will cost £58 per match, a rise of 90% on the £30 charged last season!

Taking into account these higher price rises, the weighted average price increase per match is probably around 75%. In one season QPR are inflicting a larger ticket price increase on their fans than the Glazers have imposed at United over six years!

All this means the club will take close to £4m in extra revenue next season rather than the £2.8m I had estimated. That’s a nice extra of course, but still only 10% of the TV cash coming QPR’s way and a mere 0.02% of the combined wealth of the club’s owners.....

23 comments:

Nice post. One of the benefits of our promotion is that we'll get a bit of attention from better bloggers. I look forward to Swiss Ramble too getting involved!

Your point about the owners' motivation being unclear. Briatore got involved on a bit on a whim. There's a quote where he says he thought we were a restaurant at first. Ecclestone followed to help out a mate.

Between them they came up with a decent short term gamble which involved 4 rough stages.

1, Buy a Championship Club for £1-2m (the actual amount is in dispute as one of the former owners Caliendo claims he is owed money).

2. Use your contacts to get better commercial deals. Which they did, although QPR has become like an F1 lobbying club. Gulf Air and Santander only getting involved to grab Bernie's ear at the odd home game he attends. Probably worthwhile spending another £1m if you're spending £200m globally on a sport as it is alleged Santander do. But that explains the good commercial performance.

3. Get it promoted. Tick box.

4. Sell it. Bernie's comments in April even while the FA commission was going on fired the starting gun on this.http://www.guardian.co.uk/sport/2011/apr/26/formula-one-bernie-ecclestone-qpr

Bernie/Flavio - they act together so should be considered as an entity - added two good interim moves from their pov. The price of the club was cheap due to high debts. They took on these debts but paid off the previous loans and took them on themselves, paying interest to their own companies. A small dividend on a big debt guarantee, but they're banking on never paying the debt back and selling the club with it. So, a nice interim return.

Also, they sold 20%, then another bit to make 33% to the Mittals. So they probably already made back their initial investment.

Essentially they've already made money but will bank their big profits when they sell up.

Depending on who you believe Mittal offered anywhere from £30m-£60m for the club. Given he bought Bernie's old house for a then record amount, Bernie is used to fleecing him for good money.

As a fan I'm most upset in the wasted opportunity for the club to grow with promotion. I do at least respect Ecclestone for being honest and being clever. He's never pretended he's a fan of the club or any kind of saviour. Flavio however...

Thanks for the comment Jim. One of things that struck me looking at the accounts was that in 2008 they published a glossy, detailed version with photos of Flavio and lots of talk of "custody" of the club etc. After that glossy publication, silence. Back to minimum reporting at Companies House....

It's almost as if they though about the Cityesque "project" and then decided "No, can't be arsed".

Do you worry about the ground being sold and some relocation to a bit of waste ground in Willesden or somewhere?

This is a very good article, Anders, although you understate the degree to which QPR supporters are being screwed. The number of season tickets is to be strictly limited (I believe to around 7000 or so), meaning that a larger number of seats at any one match will be available on a 'walk up' basis. Based on the club's presentation of the 'savings' to be made by buying a season ticket, it's clear that the price rise for single match tickets is going to be even steeper. For example, to sit near my father (a season ticket holder), I need to buy a 'Gold' category ticket. For the 2010-11 season these cost £30. Based on what the club is saying about the benefits of buying a season ticket, it seems that the same seat is now set to be sold for £58. So that's about a 93% rise vs. last season's price!

I've heard it said that for the 2011-12 season, the cheapest seats at Loftus Road will cost only slight less than the most expensive ones at Anfield. I could not be angrier. QPR has a largely working class fanbase that already has to contend with the current big squeeze on the cost of living...

good read anders, the only conclusion to come to regarding why bernie and flavio have put this price increase onto the fans is that they do not want us there. 2.8 mill to be gained does not make business sense if the cost of it is to lose the low wage earning fans.

Your maths is spot on but you must have paid the "early bird" price (£469) last season. My graphs were based on the full price £525. There is of course no "early bird" option this season. Norwich by contrast are giving discounts for early renewal...

@Anders - not worried about a move if done for the right reasons and to grow the fanbase in the long run. We moved 12 times in our history before so were nomads until the 1920s.

@Anonymous am in silver too, your calculation is about right. I made it 67%

Two further thoughts.

1. Why the price rises? If you're looking to sell a Prem club a rough rule of thumb is it is worth x1 turnover. Every £ added means more fattening of the goose

2. Forgot to say as a valued season ticket holder, in addition to the cap I have to pay £35 just to buy a guest ticket. At an average of £52 in silver. Some games it will be more - there will be the old A/B/C categorisation of matches. Imagine Man U visit will be around £70

Thanks for all the comments. I've added an edit at the end of the piece. I always try to correct errors. Assuming 50% of seats are season tickets and 50% are match day tickets I calculate the average increase per match to be 75-80%.

That's probably the largest annual ticket price increase in the history of professional football...

Your point about the glossiness of the accounts - probably a remnant of the requirement of a plc to publish accounts even after the plc stopped being listed when the club went into administration in 2001. Think it's five years and they probably carried on a bit longer before realising.

Not so much a commentary on ambition as a realisation of pointlessness...

love QPR and would dearly love to go,I have decided instead to keep my money and I have just purchased a Leyton Orient season ticket , I know its not my R@s but would rather support my actual local team and for only £300 ...

Thanks for a really good article which says a lot about the current state of QPR. Currently the popularity of the Ecclestone/Briatore clique is the lowest it's ever been, though its never really been high. It's an unfair judgment in some respects because its is fair to say they saved the club from a dire financial state and , as you indicate, brought in sponsorship funding which no one else could probably have done. And, of course, they brought in the Mittals. Most of us at QPR see the Mittals as much more positive owners of QPR than Bernie and Flavio. The Mittals are at the matches and have an excellent rapport with the fans, something that the irregular attending/leave early/ignore the fans/ Briatori and Ecclestone have not attempted. Even before the price hike and the response of Mittals reps on the board, we would have preferred to see the Mittals become the sole owners and hope that will still be the case.Even aside from the unjustified price hikes what is even more annoying is the fact that so far at least it appears that none of the extra cash being generated from admission charges and the Premiership perks seem to be going into squad strengthening. We are also seeing a return to the managerial uncertainties which characterised the club previously when Briatore held sway. Having got us promotion Warnock's reward has been a gossip stream suggesting he's going to be replaced by whichever Italian manager seems to be best friends with Flavio on that day. All of which is making us, yet again, a laughing stock. So please keep the articles coming.

Great read andersred - your analysis has been linked to some QPR message boards, where I came across it - it shows starkly just how badly Rs fans are being shafted by owners who care nothing for the Club beyond a business opportunity.Now that I've belatedly found your blog I'll continue to follow it for the brilliant insights into the murky world of footy finance.I appreciate the amount of time and effort you must put into writing this blog and I hope you get enough positive feedback to consider it worthwhile - thanks so much!

A really interesting piece - thanksIn regard of Bernie’s motive - perhaps its worth looking at the BBC TV centre - the whole BBC move north finances are base don selling Wood Lane HQ – negotiations were at an advanced stage when the economy faltered, this affected the price – the buyer withdrew…What if Bernie was the buyer and the plan was to move Rangers to a super stadium at wood lane which also served as a music venue and top class hotel – as Westfield needs…..Hammersmith and Fulham Council would also want to see some housing but if the buyer was Bernie then that housing would be on the Loftus Rd site! I hear negotiations are under way again….also wouldn’t it be a good home straight for a London grand prix!

Many thanks for the blog. A rare objective look at a sensitive subject for us QPR fans.

It is difficult to get a sensible take on this because our message boards tend to be monopolised by the paranoid. For instance there doesn't seem to me to be any intention of replacing Warnock, the paper talk boiling down to the owners default position of keeping employees on their toes. Hopefully Ecclestone will sell soon to someone with some thought for the long term interests of the club. He is obviously after the highest bidder and I do not really see the Mittals as fairy godmothers so maybe that is a long shot.

Thanks for all the comments. I struggle to think of a worse example of fans being financially exploited than this one. It makes my blood boil to (again) see football supporters treated like shit to make rich people richer while the "football authorities" bang on about "the best league in the world", snoods and people swearing on TV...

Reflecting on it all after a couple of days it seem to me that this is all about Ecclestone flipping the club on. Push through the price increase, show it sticks (sadly all fans are addicts at heart) and that's £4m or so on the bottom line and c. £30-40m on the value of the club. Simple as that really.

I just hope for QPR fans' sake that IF the club is sold it ends up in the hands of someone in it for the glory not the cash.

The property angle is an interesting one in the new age of Westfield and a gentrifying Shepherds Bush, maybe a long-term threat/opportunity for the club.

Excellent argument, but, remembering when QPR were last in the Premier League, we were getting very poor crowds. Probably, most of this years season ticket holders will renew, but I can't really see many paying circa £60 a match to see us against the likes of Wigan and Bolton, though Chelsea, Man U etc will be sell outs. Bearing that in mind, the extra revenue because of cost, will be balanced by the smaller crowds than would be expected if we only increased matchday tickets by 10%, unless we have a cracking season, which I doubt will happen, sadly.If we do end up struggling or getting demoted, which is higly likely, don't expect crowds to be more than 15,000, the owners/their chairman have no idea about the depth of feeling that Rangers fans have, and how they feel let down.Here's hoping I'm wrong, though I do remain angry that I'm having to pay so much more for 4 fewer matches.